Energy bills at top of Legislature's priorities

Posted: Monday, March 29, 2010

Energy legislation is commanding a lot of the Legislature's attention as the 2010 session heads toward its April 18 closure.

Bills adding new incentives for Cook Inlet gas exploration and creating incentives for storage facilities for natural gas are moving in the state House.

On a different track, legislation establishing new framework for the state's work on a stand-alone natural gas pipeline from the North Slope to Southcentral Alaska, the so-called bullet line, is active in both the House and Senate.

In yet another effort, legislators are working on bills establishing incentives for industrial customers using natural gas in the Cook Inlet region.

This issue hasn't caught a lot of attention in the public, but industrial customers are needed to make a stand-alone pipeline economically feasible because the demand for gas from local utilities in the region is too small.

A fertilizer plant that operated for decades near Kenai using gas is now closed, and a nearby natural gas liquefaction plant that still operates faces an uncertain future, with its federal LNG export license set to expire a year from now.

Rep. Mark Neuman, R-Big Lake, is pushing House Bill 217, which would help these industries, and create new ones, by extending a preferential tax rate in the state gas production tax for gas sold to companies operating plants that manufacture products using natural gas as a feedstock. The bill is now in the House Finance Committee.

An effort with the same general goal is being made in the Senate, where Sens. Lesil McGuire, R-Anchorage, and Bill Wielechowski, D-Anchorage, are sponsoring a bill to re-establish a state industrial development tax credit taken off the books years ago. They take that idea and apply it to new gas-based manufacturing, such as a gas-to-liquids plant or the fertilizer plant, if it can be restarted. The bill is Senate Bill 228, and it is now in the Senate Finance Committee.

There are two initiatives under way in the state House aimed at shoring up natural gas supplies for Southcentral Alaska utilities.

House Speaker Mike Chenault, R-Nikiski, has a bill moving in the House that would expand an existing tax credit intended to encourage exploration for and development of new gas in all parts of the state except the North Slope.

Chenault's HB 229, now in the House Finance Committee, is aimed mainly at stimulating new gas development in the declining gas fields of Southcentral Alaska, but it would apply in Interior and Northwest Alaska where exploration for natural gas is also planned.

There are existing state exploration tax incentives, but they do not apply to new gas reserves developed within existing fields. Chenault's bill allows for that. It also allows the tax to be credited against a company's state corporate tax liability, where other incentives allow tax credits applied against state production taxes.

New gas development is urgently needed in Southcentral Alaska, as the existing gas fields are running down, and by 2014 may not be able to supply the region's needs for space heating and electrical generation, industry and independent consultants say.

House Finance co-chair Rep. Mike Hawker, R-Anchorage, has another bill moving in the House that tackles a different problem in the gas supply problem: gas storage. While gas wells may be soon unable to meet the Southcentral region's total needs, they are already unable to meet peak winter needs during cold snaps.

The liquefied natural gas plant now backstops the region's utilities during very cold weather by ceasing shipments of LNG and diverting gas to the utilities. Whether the plant will be able to continue in this role after March 2011, when its LNG export license expires, is unknown.

Gas storage facilities are commonly used in the Lower 48 to store gas for winter utility needs, and Hawker's HB 280 would establish tax credits and other incentives for development of large storage facilities to serve Alaska utilities.

Enstar Natural Gas Co. is now working with a TransCanada Corp. subsidiary to develop a large storage facility on the Kenai Peninsula, but the project requires a substantial investment. Hawker's bill was expected to pass the state House March 24 and move to the Senate.

There is also a lot of work being done on the idea for an in-state gas pipeline, or bullet line. The governor's office is now coordinating preliminary planning and engineering for a possible 24-inch pipeline that could deliver North Slope gas to Southcentral Alaska before a large-diameter pipeline is built from the Slope.

The plan, initiated originally by Enstar Natural Gas and backed by former Gov. Sarah Palin, is also seen as a backstop in case the large pipeline does not move forward or is delayed. Former state geologist Bob Swenson is heading the effort, having taken over from the previous director, Harry Noah, in January.

Enstar has done work on the bullet line for several years and has contributed its preliminary engineering work to the state effort, which has been under way for about a year now.

On a parallel track, the Alaska Natural Gas Development Authority, an independent state corporation, is doing work on a spur line, which could connect on a route through Glennallen to the big pipeline at Delta.

Separate bills are being promoted by Chenault in the House and by McGuire and Wielechowski in the Senate. The Senate version would bring the gas line under the Alaska Railroad Corp., and the House bill would leave the effort in the governor's office but put it under the direction of a in-state gas development team that would include the railroad as well as other agencies, including the gas authority and the state Department of Transportation and Public Facilities.

Chenault's bill is HB 369, which passed the House last week. McGuire's and Wielechowski's SB 287, which transfers the in-state gas line construction planning to the railroad, is now in the Senate Finance Committee.

The two bills appear to conflict with each other in their current form, but as they move through the Legislature, their purposes may become more distinct. A developing concept is that the railroad may take on the more direct engineering and construction functions, leaving the in-state gas team in the governor's office to work on broader issues, such as marketing gas shipped through an in-state line.

Tim Bradner can be reached at tim.bradner.@alaskajournal.com.



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